Trending Indicators – Bollinger Bands, Commodity Channel Index (CCI), Moving Averages

Judging by the name, this group of indicators helps you follow the trend and stay with it is as long as it is unfolding. Under this sub-chapter will try to introduce to you three trending indicators, being considered one of the most popular trending indicators out there: Bollinger Bands, Commodity Channel Index (CCI), and Moving Averages:

Bollinger Bands: coming from John Bollinger, this popular indicator takes the shape of a “channel” on your screen, a channel in which price is traveling, and having 3 components: upper Bollinger band, middle Bollinger band and lower Bollinger band. The middle one it is usually a simple moving average, of 20 period as a default setting, or sometimes instead of a simple moving average an exponential one is being used. Standard interpretation is that as long as price stays between the middle and the upper Bollinger band, trend is bullish and price should go up. When looking to buy dips then a testing of the moving average should be the signal. Opposite for a trend to the downside. As long as price stays between the middle and lower Bollinger band, trend is bearish and price should go down. When looking to sell pullbacks, wait for the middle band to be reached. Book recommendation: John Bollinger , “Bollinger on Bollinger Bands”, July 2001, McGraw-Hill.

Commodity Channel Index (CCI): this is a common tool for traders trying to identify a trend and stay with it. Default levels for it are -100 and 100 levels, but actually the indicator travels a lot below/above those levels and depending of the type of strategy a trader has, this one might be used for identifying divergencies between price and it and/or buying/selling extreme lows/extreme highs. Couple of examples are provided in the recording.

Moving Averages: every trader out there uses moving averages, or at least at the beginnings they were definitely in the trading tools being used. Their greatest advantage is the fact that are extremely visual and easy to understand, coming in the form of simple moving average or exponential, as being the most popular forms. What to look for when using moving averages is the moment two different averages of different periods are crossing, a couple of examples being presented on the recording.